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Slide 1 of 47 0235898-00002-00 Ed.12/2012 Advanced Strategies to Increase Social Security Income Prudential Annuities, its distributors and representatives.

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Presentation on theme: "Slide 1 of 47 0235898-00002-00 Ed.12/2012 Advanced Strategies to Increase Social Security Income Prudential Annuities, its distributors and representatives."— Presentation transcript:

1 Slide 1 of Ed.12/2012 Advanced Strategies to Increase Social Security Income Prudential Annuities, its distributors and representatives do not provide tax, accounting, or legal advice. Please consult your own attorney or accountant. [When presenting in AR, CA, OK, TX or IL, use the phrase Insurance Sales Presentation. David Tolpingrud

2 Slide 2 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Optional Disclosure Slide Investments are offered through [broker dealer name], a registered broker dealer (member FINRA/SIPC). Insurance is offered through [agency name]. [Broker dealer name] and [agency name], located at [address], are not affiliated with Prudential Financial.

3 Slide 3 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. [Hosted/Presented by:] [PFR Name] Personal Financial Representative [Allstate Financial Services, LLC or LSA Securities (in LA & PA)] Securities offered by Personal Financial Representatives through Allstate Financial Services, LLC (LSA Securities in LA and PA). Registered Broker-Dealer. Member FINRA, SIPC. Main Office: 2920 South 84th Street, Lincoln, NE (877) [For Allstate Financial Services only: This slide must be shown prior to the beginning of the customer presentation]

4 Slide 4 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. This guide presents a general overview of certain rules related to Social Security and the ideas presented are not individualized for your particular situation. This information is based on current law which can be changed at any time.

5 Slide 5 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Health and Future of Social Security Social Security Maximization Strategies Social Security Cash Flow Agenda

6 Slide 6 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Benefits are wage driven Employee and employer each pay 6.2% for Social Security (OASDI) –$113,700 cap on taxable earnings for Social Security (2013 limit) –2011/2012 Reduced Employee Social Security Taxes 1.45% for Medicare Hospital Insurance (HI) –Affordable Care Act increase Funding The System Source: 2012

7 Slide 7 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Becoming eligible 40 quarters (10 years) of wages that were subject to Social Security payroll taxes Quarters do not need to be consecutive Quarters do not expire and will remain on Social Security record Benefits calculated based on average of the 35 highest years of earnings $0 used in all years less than 35 Will result in a lower benefit Funding and Calculation of Benefits Source: SSA Publication No , ICN , February 2012

8 Slide 8 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Facts & Figures $2.7 Trillion Trust Fund $736 Billion in Benefits Paid in 2011 $805 Billion Added to Trust Fund in 2011 By 2033 Trust Fund will be Depleted 75% of benefits to be paid at that point Health of the System Source: as of October 2012

9 Slide 9 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Increase Social Security Payroll Taxes by a total of 1% Increase to 6.7% for employees / 6.7% for employers Extends life of Social Security Trust Fund to 2056 Increase Social Security Payroll Taxes by a total of 2% Increase to 7.2% for employees / 7.2% for employers Extends life of Social Security Trust Fund to 2083 Potential Future Changes? Source: Congress of the United States Congressional Budget Office: Social Security Policy Options, July 2010

10 Slide 10 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Uncap Earnings Limits on Social Security Payroll Taxes Apply to both employer and employee Extends life of Social Security Trust Fund to 2083 Raise Full Retirement Age Increase to 68 for those born after 1966 Does not extend life of Social Security Trust Fund significantly Increase to 70 for those born after 1978 Does not extend life of Social Security Trust Fund significantly Potential Future Changes? Source: Congress of the United States Congressional Budget Office: Social Security Policy Options, July 2010

11 Slide 11 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Social Security Maximization Strategies

12 Slide 12 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. In 2011, 74% of Social Security beneficiaries received reduced payments Why Do Clients File Early? Bird in hand Dont trust the government Anticipate shorter lifespan Take and invest Social Security Maximization Strategy Source: as of October 2012

13 Slide 13 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Full Retirement Age (FRA) Early Retirement Delayed Retirement Credits (DRC) When To Commence Benefits? Source: as of October 2012 As low as Up to

14 Slide 14 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Retirement Earnings Test Under Full Retirement Age (FRA) Give up $1 in benefits for every $2 earned above a $15,120 limit In the Year Full Retirement Age (FRA) is reached Give up $1 in benefits for every $3 earned above a $40,080 limit Full Retirement Age (FRA) No penalty Taking Benefits and Working Source: as of October 2012

15 Slide 15 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Social Security Maximization Strategy Breakeven Points: Age 66 vs. 62: Age 76 Age 70 vs. 62: Age 79 Age 70 vs. 66: Age 81 This is a hypothetical example for illustrative purposes only. This assumes a full retirement age benefit of $24,000 a year, an annual cost of living adjustment of 3%, and the client living to age 95.

16 Slide 16 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. * Source: U.S. Annuity 2000 Mortality table, Society of Actuaries Social Security Maximization Strategy

17 Slide 17 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Married individuals can claim Social Security benefits based on Personal earnings record, or Spouses earnings record If electing based on spouses earnings record Spousal benefit is up to 50% of their spouses Social Security benefit Cannot claim spousal benefit until the spouse files for benefits Spousal Benefits Source: as of October 2012

18 Slide 18 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Surviving spouse can receive or step up to the benefit of the deceased spouse If survivor is full retirement age, 100% of spouses benefit Survivor benefits generally begin at age 60 Survivor benefits reduced if received before full retirement age – up to 28.5% Exceptions for widowers with children who are under 19 Survivor can switch to his or her own benefits Advantageous if greater when full retirement age reached Survivor Benefits Source: as of October 2012

19 Slide 19 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Social Security Maximization Strategy Age Jen stayed home and raised the family, so she has no earned Social Security benefits of her own 85 Matt dies at age Jen dies at age Jen and Matt are married and both 62 years old This is a hypothetical example for illustrative purposes only. 66 Matts full monthly Social Security benefit at age 66 will be $2,000

20 Slide 20 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Option 1: File Early At Age 62 Matt files, lives 23 years Social Security Maximization Strategies This is a hypothetical example for illustrative purposes only. Reduced benefit of $1,500 month / $18,000 year for 23 years Jen files, lives 30 years Reduced spousal benefit of $700 month / $8,400 year for 23 years Survivor benefit of $1,500 month / $18,000 year for 7 years

21 Slide 21 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Option 2: File At Full Retirement Age Matt files at 66, lives 19 years Social Security Maximization Strategies This is a hypothetical example for illustrative purposes only. Receives $2,000 per month / $24,000 per year Jen files at 66, lives 26 years Receives $1,000 per month / $12,000 per year for 19 years Survivor benefits of $2,000 month / $24,000 year for 7 years

22 Slide 22 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Option 3: Matt Files & Suspends Matt files at 66, lives 19 years, suspends benefits until age 70 Social Security Maximization Strategies This is a hypothetical example for illustrative purposes only. At age 70, receives $2,640 per month / $31,680 per year Jen files at 66, lives 26 years Receives $1,000 per month / $12,000 per year for 19 years Survivor benefits of $2,640 month / $31,680 year for 7 years

23 Slide 23 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Matt and Jen Claim at 62 $414,000 of his benefits $193,200 of spousal benefits $126,000 of survivor benefits Total Payout: $733,200 Matt and Jen Claim at 66 $456,000 of his benefits $228,000 of spousal benefits $168,000 of survivor benefits Total Payout: $852,000 Matt Files & Suspends at 66 $475,200 of his benefits $228,000 of spousal benefits $221,760 of survivor benefits Total Payout: $924,960 This is a hypothetical example for illustrative purposes only. Social Security Maximization Strategies

24 Slide 24 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Increases benefits for couples who retire at different ages Things to remember Married couples are eligible for benefits based on their earnings history or their spouses earnings history Clients cannot collect on your spouses earnings history until your spouse files for benefits Clients can file for benefits and immediately suspend receiving those benefits Spouse who suspends the benefits continues to receive delayed retirement credits (DRC) Suspending spouse must have reached full retirement age File and Suspend This is a hypothetical example for illustrative purposes only.

25 Slide 25 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Social Security Maximization Strategy Age 85 Adam dies at age Meghan dies at age 92 This is a hypothetical example for illustrative purposes only. 62 Adam and Meghan are married and both 66 years old Meghans full monthly Social Security benefit at age 66 will be $1,500 per month 70 Adam is looking to retire at age 70, his Social Security benefit will be $2,640 per month 66

26 Slide 26 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Social Security Maximization Strategy This is a hypothetical example for illustrative purposes only. Option 1: Meghan files and Adam waits Meghan files for benefits at age 66 She receives $1,500 per month / $18,000 per year for 19 years Survivor benefits of $2,640 month / $31,680 per year for 7 years Adam files in four years at age 70 Adam receives $2,640 per month / $31,680 per year for 15 years

27 Slide 27 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Option 2: Adam files a Restricted Application Entitled to 50% of Meghans benefit In the first four years he receives $750 per month / $9,000 per year At age 70, he switches to his own benefit Over the next 15 years, he receives $2,640 per month / $31,680 per year At age 66, Adam files a Restricted Application Social Security Maximization Strategy This is a hypothetical example for illustrative purposes only. Meghan files at 66, her benefits are unaffected

28 Slide 28 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Meghan Files At 66 / Adam Files At 70 $475,200 of his benefits $342,000 of her benefits $221,760 of survivor benefits Total Payout: $1,038,960 Adam Uses Restricted Application $36,000 of spousal benefits $475,200 of his benefits $342,000 of her benefits $221,760 of survivor benefits Total Payout: $1,074,960 This is a hypothetical example for illustrative purposes only. Social Security Maximization Strategies

29 Slide 29 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Increases benefits for couples with their own earnings history who may be retiring at different ages Things to remember: Individuals can collect spousal benefits and allow their personal earnings history benefits to receive delayed retirement credits Individuals cannot collect benefits on their spouses earnings history until their spouse files for benefits Individuals cannot file a restricted application until they have reached full retirement age Restricted Application This is a hypothetical example for illustrative purposes only.

30 Slide 30 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Social Security Cash Flow

31 Slide 31 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. What is Net Cash Flow? Social Security Cash Flow Reductions –Taxes –Medicare Premiums Calculating Social Security Cash Flow

32 Slide 32 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Taxation of Social Security Benefits Provisional Income includes: ½ Social Security benefits Income from municipal bonds Wages Business income Interest Capital gains Dividends Traditional IRA distributions Rental income And more… Provisional Income does not include: Tax-deferred build-up inside IRAs, 401(k)s and annuities Income from Roth IRAs Non-taxable income from life insurance Benefits may be taxable depending on the amount of clients provisional income

33 Slide 33 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Taxation of Social Security Benefits Benefits only taxable if provisional income exceeds: Single or Head of Household $25,000 = SS not taxable $25,000 - $34,000 = up to 50% taxable Above $34,000 = up to 85% taxable Married Filing Jointly $32,000 = SS not taxable $32,000 - $44,000 = up to 50% taxable Above $44,000 = up to 85% taxable Source: as of October 2012 Prudential Annuities, its distributors and representatives do not provide tax, accounting, or legal advice. Please consult your own attorney or accountant.

34 Slide 34 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Calculating Social Security Cash Flow Medicare Part B Premiums as of November 2012 If Your Yearly Income in 2011 wasMonthly Medicare Part B Premium File Individual Tax ReturnFile Joint Tax Return $85,000 or less$170,000 or less$ above $85,001 up to $107,000above $170,001 up to $214,000$ above $107,001 up to $160,000above $214,001 up to $320,000$ above $160,001 up to $214,000above $320,001 up to $428,000$ above $214,000above $428,000$335.70

35 Slide 35 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Calculating Retirement Cash Flow $999 less net cash flow This is a hypothetical example for illustrative purposes only.

36 Slide 36 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. What will reduce my clients cash flow in retirement? How much will my clients owe in taxes? –Federal / State / Local What pension option did my client choose? –Is my clients pension integrated? »Could be reduced when they become eligible for Social Security –Will a government pension reduce my clients Social Security? »Government Pension Offset / Windfall Elimination Provision Calculating Social Security Cash Flow

37 Slide 37 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. What will reduce my clients cash flow in retirement? How will the cost of Medicare affect my clients Social Security? –Premiums for Part B, D, Supplement, Co-pays and Deductibles How will other Healthcare and Long-term Care costs affect cash flow? Have my clients accounted for inflation? Calculating Social Security Cash Flow

38 Slide 38 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Retirement Income – Then and Now Social Security is the largest source of income for most elderly Americans today, but Social Security was never intended to be your only source of income when you retire. You also will need other savings, investments, pensions or retirement accounts to make sure you have enough money to live comfortably when you retire. Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 75 cents for each dollar of scheduled benefits.* Social Security is the largest source of income for most elderly Americans today, but Social Security was never intended to be your only source of income when you retire. You also will need other savings, investments, pensions or retirement accounts to make sure you have enough money to live comfortably when you retire.

39 Slide 39 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Retirement Income – Then and Now

40 Slide 40 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Variable Annuities Provide: Control Over Timing of Taxes Tax Deferral Tax-Free Portfolio Rebalancing Access to Equity Markets Potential for Guaranteed Lifetime Income Generating Supplemental Income

41 Slide 41 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Considerations include: Fees & Charges – May apply and will vary depending on the annuity product chosen and any optional features selected. Access to Money – Generally allows up to 10% of purchase payments without incurring any charges. Withdrawals – Taxable amounts are subject to ordinary income tax and, if made prior to age 59½, may result in an additional 10% federal income tax penalty. Withdrawals, other than from IRAs or employer retirement plans, are deemed to be gains out first for tax purposes. Suitability – Investors should consider all aspects of a variable annuity including investment objectives, risks, charges and expenses carefully before investing. Generating Supplemental Income

42 Slide 42 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. 1.Schedule Conversations 2.Review Social Security Benefits and Options 3.Ask Three Questions 1.What strategies do you have to increase your Social Security benefits? 2.Other than Social Security, what guaranteed income sources do you have? 3.How important is it to have a source of guaranteed income? Follow a Three-Step Plan

43 Slide 43 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Social Security is an important part of a retirement income plan Certain strategies can increase benefits Help clients determine how much retirement cash flow they need Summary

44 Slide 44 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Questions

45 Slide 45 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. Investors should consider the contract and underlying portfolios' investment objectives, risks, charges and expenses carefully before investing. This and other important information is contained in the prospectus, which can be obtained by contacting the National Sales Desk. Your clients should read the prospectus carefully before investing. Variable annuities are issued by Pruco Life Insurance Company (in New York, by Pruco Life Insurance Company of New Jersey), Newark, NJ and distributed by Prudential Annuities Distributors, Inc., Shelton, CT. All are Prudential Financial companies and each is solely responsible for its own financial condition and contractual obligations. Annuity contracts contain exclusions, limitations, reductions of benefits and terms for keeping them in force. Your licensed financial professional can provide you with complete details. Disclosures

46 Slide 46 of 47 For Financial Professional/CPA/Attorney Use Only. Not For Use With The Public. This material was prepared to support the marketing of variable annuities. Prudential, its affiliates, its distributors and their respective representatives do not provide tax, accounting or legal advice. Any tax statements contained herein were not intended to be used for the purpose of avoiding U.S. federal, state or local tax penalties. Please consult your own independent advisor as to any tax or legal statements made herein. A variable annuity is a long-term investment designed for retirement purposes. Investment returns and the principal value of an investment will fluctuate so that an investor's units, when redeemed, may be worth more or less than the original investment. Withdrawals or surrenders may be subject to contingent deferred sales charges. Withdrawals and distributions of taxable amounts are subject to ordinary income tax and, if made prior to age 59½, may be subject to an additional 10% federal income tax penalty. Withdrawals, other than from IRAs or employer retirement plans, are deemed to be gains out first for tax purposes. Withdrawals reduce the account value and the living and death benefits. All guarantees, including optional benefits, are backed by the claims-paying ability of the issuing company and do not apply to the underlying investment options. © Prudential Annuities, Prudential, the Prudential logo, the Rock symbol, and Bring Your Challenges are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide. This proprietary Continuing Education course was prepared for Prudential Annuities for the education of Financial Professional, CPAs and Attorneys. It is not intended to provide, nor should be relied on for, accounting, legal, or tax advice. Any unauthorized distribution, use, or copying of any part of this course is strictly prohibited. Disclosures


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